“How Shareholders Can Promote Corporate Decarbonisation” – address to the Foreign Correspondents’ Club of Japan

“How Shareholders Can Promote Corporate Decarbonisation” – Julien Vincent address to the Foreign Correspondents’ club of Japan

On 27 June 2022, Market Forces Executive Director Julien Vincent made an address to the Foreign Correspondents’ Club of Japan with a speech titled “How Shareholders Can Promote Corporate Decarbonisation”. A recording of the press conference and Julien’s introductory speech can be found below:

From the Foreign Correspondents’ Club of Japan website:

The resolutions will be voted on later this month during the annual shareholder meetings of Mitsubishi Corp., Tokyo Electric Power Co., Chubu Electric Power Co., and Sumitomo Mitsui Financial Group.

Can shareholders turn Japan’s corporations green? A group of non-governmental organizations (NGOs) is trying. Market Forces, an Australian environmental NGO, and local partners have submitted shareholder resolutions calling on four Japanese corporations to adopt business plans that align with the Paris Agreement goal to limit global warming to 1.5 degrees Celsius. 

Market Forces Executive Director Julien Vincent will be in Japan to press the case for the resolutions. Thanks to Market Forces campaigns, Australia’s four largest banks agreed to stop funding coal projects by 2030, and the country’s major insurance companies agreed to cease underwriting new coal projects. In recognition of his activism, Vincent was awarded a Goldman Environmental Prize earlier this year. At the FCCJ, he will discuss the shareholder resolutions, their chances of success, and the global trend toward corporate decarbonization.

Full text of Julien’s introductory address:

Good afternoon everybody and thanks for the opportunity to meet and address you today.

I’d like to thank the Foreign Correspondents Club of Japan for the invitation to be here and Taka-san for suggesting me as a speaker.

There is a lot I would like to discuss with you today. Hopefully, over the next twenty minutes or so you can look forward to many elements that make up a good story: the challenging of the status quo, political intrigue, at least a little espionage and the imprisonment of our heroes, a sudden twist in the plot and a lot of overcoming the odds, all against the backdrop of our central plot, the existential threat facing humanity.

Let me start by introducing myself. I am the founder and executive director of an organisation called Market Forces. The idea for that name was essentially an attempt to recast the term. Market Forces is something we often hear about as if it was a mystical or “hand of god” kind of phenomenon, which is quite disempowering to the average person.

By adopting the name, I wanted to point out that market forces are simply the sum product of everybody’s choices and actions, making it a much more active term than a passive one.

For nearly ten years my organisation has been advocating to shift finance and investment away from activities that damage the environment and into those that protect and enhance it, with the climate crisis central to our work.

Some results of campaigns we have taken part in include Australia’s biggest banks committing to have no exposure to thermal coal by 2030, our three biggest insurers also committing to being out of thermal coal by 2030 or sooner, banks across Asia ending finance to new coal mines or power stations, and institutional investors such as pension funds divesting of coal, oil and gas companies.

Key to what we do is engaging with people in their capacity as customers of banks, buyers of goods and services, members of pension funds and shareholders of companies to demand change from companies that are either engaged in activities incompatible with a safe climate future, or otherwise financing those activities.

And this brings me to what I’m doing in Japan. One of the major drivers of change from companies and financial institutions in recent years has been shareholder action; essentially working with shareholders to make interventions at companies that hold them accountable for the climate risks they create or are exposed to.

Shareholder action can take many forms but most well known is the filing of proposals to be voted on at company shareholder meetings. Once a proposal is filed it forces conversations between the board and management of a company, and its ownership base, with the result of those conversations ideally being the company taking steps to remedy the the issues raised in the proposals.

For instance, a proposal on the issue of human rights could result in a company setting a policy or taking other measures to eliminate modern-day slave labour from its supply chain.

Usually, unless a company responds comprehensively to the concerns raised in the proposal, it goes to a vote at the shareholder meeting. This is a very different system to electoral voting in a democracy – companies have an enormous amount of control over the conversation they can have with investors, as well as the direction of votes.

Most items of business at a shareholder meeting sail through with 95% or more of a vote. Generally, when votes against management are in the order of 15, 20 or 25%, this is seen as a significant backlash against the board.

In the United States, where shareholder proposals are most common, votes are frequently approaching or even passing 50%. Last year, 48% of Chevron shareholders voted in favour of the company producing an audited report on how a significant reduction in fossil fuel demand, such as what the International Energy Agency’s net-zero by 2050 scenario depicts, would affect its financial position and underlying assumptions.

Last month 52% of ExxonMobil shareholders approved a proposal for the company to produce the same type of audited report, assessing the financial statements’ resilience to a net zero by 2050 scenario.

In Japan, shareholder proposals related to climate change are also on the rise. In 2020 we saw the first proposal filed by Kiko Network on Mizuho. It called on the company to disclose a plan outlining how its business strategy would align with the goals of the Paris Agreement. This received a vote of 34%.

Last year, proposals were filed at MUFG and Sumitomo Corp, which Market Forces was a party to. The votes were not as high but more significantly, there were some major changes committed to by the companies in the context of these proposals.

In the case of Sumitomo, this included a commitment to no longer build new coal power stations, which it followed through with earlier this year by withdrawing from the Matarbari 2 coal power plant, proposed to be built in Bangladesh. I am happy to report that as of last Wednesday, this project has been officially cancelled.

This is a great result for all of the grassroots organisations and NGOs working in Bangladesh and Japan, as well as international organisations that have campaigned on this project for years. As a result of all their hard work, we will avoid the construction of an unnecessary and highly polluting new coal power plant that would have resulted in thousands of premature deaths from local air pollution impacts, and release hundreds of millions of tonnes of greenhouse gases that the climate simply cannot afford.

This year, we are working with colleagues at Kiko Network, 350.org Japan, Friends of the Earth Japan and Rainforest Action Network to file shareholder proposals across four companies: Mitsubishi Corp, TEPCO, Chubu Electric Power and SMBC Group.

The proposals centre on two main themes:

  • The need to set short- and medium term targets to reduce greenhouse gas emissions in line with the Paris Agreement’s goals, and
  • Aligning the companies business strategies with their own commitments to net-zero greenhouse gas emissions by 2050.

In fact, the proposals filed at Chubu and TEPCO are modelled on those I mentioned earlier at Chevron and ExxonMobil that got close to 50% support.

There is also a shareholder proposal filed by institutional investors at J-Power along similar lines, calling for the setting of targets to reduce greenhouse gas emissions in line with the Paris climate goals.

Let me explain why these companies in particular are a focal point of attention.

There is a world of difference, and you can take that literally, between the activities of these companies and humanity’s ability to contain global warming to less than 1.5 degrees.

The International Energy Agency has made clear that getting to net-zero emissions by 2050 (which is a target that still only offers a 50% chance of containing global warming to 1.5 degrees) requires no new coal power stations, thermal coal mines, metallurgical coal mines or new oil and gas supply. It also warns that many of the LNG facilities under construction or at the planning stage are not needed.

This is not new from the IEA. It is simply the first time we have seen it in one of the organisation’s scenarios. Its Executive Director, Fatih Birol said in 2018 “We have no room to build anything that emits CO2 emissions.” This was in relation to holding global warming below 2 degrees, not the 1.5 degree limit we are aiming for.

UN Secretary-General Antonio Guterres used even stronger language a couple of months ago as the latest Intergovernmental Panel on Climate Change report was released: “Some government and business leaders are saying one thing and doing another. Put simply, they are lying”, he said. He went on to say “Investing in new fossil fuel infrastructure is moral and economic madness”.

SMBC continues to bankroll companies pursuing new thermal coal projects to the tune of billions of US dollars per year. Across the entire fossil fuel sector, SMBC has loaned US$109 billion since the Paris Agreement was signed, and is party to transactions for massive new fossil fuel infrastructure projects. These include the Scarborough-Pluto LNG project in Australia which analysts have described as a “bet against the Paris Agreement”, and the East African Crude Oil Pipeline (or EACOP), where the bank is one of the project’s financial advisors. This is a project littered with environmental and social issues that MIzuho has pulled out from working on, yet SMBC remains a key party to the deal.

Mitsubishi’s corporate reporting demonstrates how disinterested the company is in a safe climate future. Its own disclosures highlight how the company’s business strategy for LNG is based on a scenario where not only do we fail to meet the 1.5 degree limit, we don’t even keep global warming below 2 or even 2.7 degrees! This is a company making decisions to invest in new LNG infrastructure on the basis that the world won’t even come close to meeting the goals of the Paris Agreement.

TEPCO and Chubu are both exposed to climate change risks directly but also through their joint venture of JERA, which is Japan’s biggest thermal power generator by a long way, and also involved in the construction of three new coal power stations here in Japan.

But all four of these companies have something else in common: they are at the forefront of a push to expand LNG throughout Asia that is one of the biggest new threats facing the climate.

Market Forces recently worked with partners in Bangladesh to publish a report looking at the massive LNG expansion plans in that country. It found that about 20,000 Megawatts of new fossil gas projects were planned for just one region, known as Chattogram. 52% of the foreign companies backing these LNG to power projects were from Japan.

It is a similar story in Vietnam, which has enough new LNG to power projects proposed to triple the country’s power capacity. Again, Japanese companies lead those proposing to build either new LNG to power projects or LNG liquefaction, transport or regasification infrastructure.

My organisation estimated the lifecycle emissions from just 10 proposed LNG to power projects’ operating lifetime involving the companies we filed shareholder proposals with as 1.2 billion tonnes of CO2-e.

This is bad enough, but is also a massive underestimate. Proponents of fossil gas like to compare its emissions at the point the fuel is burned to that of coal to claim it is better for the climate, ignoring the intensive supply chain required to get the gas to the power station. This involves extracting the gas either on or offshore, sending it through a pipeline, cooling it to -160 degrees, shipping, regasification and then transporting it to the power station. Depending on the source of the gas and the supply chain, this process can even make LNG as bad for the climate as coal.

Of course, beyond the climate and other environmental concerns connected to LNG, we have recently been given yet another reason to avoid entrenching ourselves in this industry even further.

We are now more than 100 days into Russia’s invasion of Ukraine. More than 25% of the population have been displaced, tens of thousands have been killed and Ukraine’s economy has been estimated by the World Bank to shrink 45% this year.

Meanwhile, the economic impacts of the price hikes on oil and gas are impacting countries around the world.

Of course, in the short term the supply and demand dynamics of the international gas market must be brought back into equilibrium, both to prevent Russia from capitalising on increases in prices and to restore economic stability to the rest of the world.

But gas companies are cynically trying to exploit this situation, using the crisis in Ukraine as an argument to build even more gas infrastructure. The idea that making investment decisions in the year 2022 to build infrastructure that may come online in 2027 as a solution to this crisis is preposterous and will only further entrench countries in relying on imported fuels that could throw their economies into turmoil the next time there is a crisis impacting supply.

The Centre for Research on Energy and Clean Air estimates that during the first 100 days of Russia’s invasion, Japanese firms imported JPY 250 billion worth of fossil fuels from Russia. Out of all countries, Japan was the largest importer of Russian coal, and the third largest importer of Russian LNG. The country’s share of Russia’s total exports was over 10% for both coal and LNG.

Ukrainian activists have written to Japanese companies, urging them to end fossil fuel imports and to divest from Russian fossil fuel companies, as well as new projects such as Sahklin.

The invasion of Ukraine simply adds to the list of reasons why we need to transition from coal, oil and gas to renewable energy as fast as possible.

I want to turn my attention briefly back to these massive LNG expansion plans.

I spoke before about how Vietnam has enough LNG to power projects proposed to triple the country’s power capacity. This is despite it already being a leader in renewable energy deployment.

In the case of Bangladesh, we’re talking about a country that is currently making capacity payments, which is effectively compensation to power plant owners for power capacity that is unused and idle, to the tune of hundreds of millions of US dollars per year. Bangladesh is also facing an increasing fuel import bill and, combined, these issues are forcing increases power prices. Meanwhile, only 42% of Bangladesh’s power system capacity is actually used at present.

These contexts do not sound conducive to building massive amounts of new LNG to power projects.

So what is going on here?

Before manufacturing of power capacity takes place, a different type of manufacturing happens. It is the manufacturing of opportunity. It is the manufacturing of markets. And it happens not in factories but in boardrooms, in diplomatic visits and trade missions, through lobbying, and through advertising and other forms of marketing. 

A report released last week by Influence Map examined the lobbying efforts of six Japanese companies: JERA and Mitsubishi Corporation, Marubeni, Mitsui & Co., Sumitomo Corp and Tokyo Gas to push for more fossil gas infrastructure in Vietnam. 

These companies just happen to have business lines in producing the sort of equipment you need to build thermal power stations. Some of them just happen to deal in gas as well. They are all highly politically influential and as the Influence Map report shows, have been using that influence to manufacture opportunity for themselves.

The report points to these companies:

  • Using the Vietnamese business chamber to call for a fast tracking and approval of new LNG infrastructure projects in the next power development plan,
  • Directly engaging with senior government officials in Vietnam and across Asia, and
  • Influencing Japan’s own industrial development strategy.

Last week a briefing session was held in Bangladesh for civil society actors on the country’s latest power system master plan. Who hosted the session? JICA.

The Japanese government effectively prepares the power system master plan for Bangladesh, so should we be in any way surprised that it is loaded with the kinds of projects that Japan’s most powerful companies just happen to be good at building?

Should we be in any way surprised that Vietnam, a country with near 100% electrification already and one of the leading installers of wind and solar, has enough new LNG power capacity proposed to triple its total installed power capacity when it is lobbied so intensively by Japanese companies that just happen to have a major line of business in power plant equipment?

I should acknowledge this is not a uniquely Japanese phenomenon. The Influence Map found the same tactics being used by Korean companies and I’m sure that, given the frequency that we see American companies GE and AES among the proponents of LNG projects in the region, it is a similar story with diplomatic channels in the US.

In fact, the same is true of countries home to companies that want to sell coal, oil and gas into countries such as Vietnam and Bangladesh. Coming from Australia, a country that would rank as the 5th highest greenhouse-polluter in the world if we were accountable for the emissions of the fossil fuels we export, I can see the routine lobbying, marketing, and manufacturing of opportunity created by some of our largest coal and gas companies to keep markets open and try to open up new ones.

And then the same companies throw up their hands and say “what can we do? it’s what the countries want”. “They are asking for these projects”. The same companies that have invested their effort to push projects into power development plans of foreign countries then tell us it’s what the countries want. Let’s get real: it is what these companies want – to extract as much as they can out of business lines that create an array of environmental and social impacts and lock other countries into expensive and volatile fossil fuel imports.

This brings me to my final talking point, because the role of civil society is paramount here. In the final years where companies could get away with proposing coal power, the last refuges of the industry were places where the space for civil society to organise and speak out was severely limited. I fear it will be the same situation for gas, which is why we need to move fast on this issue.

The question of what sort of energy future countries want should be answered by its citizenry, not companies with vested interests seeking to load up power development plans with their next business opportunities. A strong civil society is vital to getting the voice of the people into the public domain where it belongs.

Last month, I was given the honour of a Goldman Environmental Prize, the highest honour there is for grassroots environmental campaigning. One of the reasons I was so honoured to receive this award was because of the company it put me among. In 2021 the Prize was received by Kimiko Hirata, then of Kiko Network and now of Climate Integrate. Kimiko-san is someone I have had the pleasure of working with for many years and you will do well to find another person as sharp, incisive and determined as her.

In 2020, the Prize was won by Lucie Pinson, who is the Executive Director of Reclaim Finance. I have also had the pleasure of working with Lucie over the years.

The fact that this prize has been received by campaigners working on the issue of climate change through a financial lens for three years in a row says a lot about the effectiveness of this approach and strategy. For too long, we have failed to tackle climate change through corporate or financial avenues as we had done with governments. We still need advocacy directed towards political representatives and likely a lot more of it. In fact, I hope this talk helps illustrate the tight connection between finance, industry and government.

But I want to finish by talking about another Goldman Environmental Prize winner. Someone I would be delighted to share this stage with but sadly, that is not possible.

In 2018 the Prize was received by Khanh Nguy, one of the most effective advocates you could ever hope to meet. Khanh was the first Vietnamese recipient of the Prize and I met her in the context of a raft of coal power plants proposed in Vietnam. We worked together to call on banks and other investors to switch their attention to renewable energy in Vietnam, turning their backs on coal.

Vietnam is an amazing place. The people are incredible, and let’s not even get started on the food and scenery because we’d be fawning over it all day. But for a civil society advocate, it’s tough. I remember my first trip to Hanoi – while being driven to a meeting I saw two policemen dragging away one old woman holding a cardboard sign. I had no idea what it said but was then told that this was apparently a rare designated protest area! It looked more like a lure than a safe haven.

In this difficult environment, Khanh reached out to local community organisations, other NGOs, business representatives and politicians of all levels. Somehow – don’t ask me how – she brought these people together. She was able to allow the government to make positive decisions to limit coal power and its myriad pollution issues, and still make those decisions on its own terms. She achieved outcomes that will avoid thousands of premature deaths from respiratory illness and prevent billions of tonnes of CO2 from entering the atmosphere. She has helped crack open the door for a renewable energy industry in Vietnam that is now among the world’s most active.

Many of us were pleasantly surprised when Vietnam committed at the COP26 climate summit in Glasgow to no longer pursue coal power and phase it out by the 2040s. But while these changes were being made on the international stage, the lives of civil society leaders were being turned upside down.

Khanh was arrested in January on “tax evasion” charges. I don’t profess to be familiar with Vietnam’s tax code, but the fact that Khanh was the fourth environmental advocate, from the third different organisation to be arrested on tax charges in a matter of months, and that these charges were being pursued as criminal and not civil matters, reeks of an ulterior motive.

Earlier this month, Khanh was sentenced to 24 months jail. This is a terrible blow for her and her young family, but also for Vietnam’s energy transition.

Many of the coal power plants we have worked on with Khanh in recent years have been proposed by Japanese companies. One of the last coal power plants that is to be built is Van Phong 1, a project that was delayed for months after a 99-year old resident had her home bulldozed without notice and without compensation. Despite being sponsored by Sumitomo Corp, Van Phong 1 will emit five times as much particulate matter, five times the SO2 and nine times the NOx as a new coal power plant built in Japan.

We need a free civil society to hold accountable the proponents of these projects for their environmental, social and economic risks.

Vietnam currently stands to receive support as a result of G7 efforts to finance the energy transition. It is vital that any financing package arranged for Vietnam comes with at least this clear condition: civil society leaders and environmental defenders are able to live their lives and conduct their work freely. It was bad enough for Khanh and her fellow advocates when they were out of jail, followed and surveilled daily by local authorities. I’m sure now they would happily return to that situation, if only to be free to see their families and colleagues again. I can’t imagine what it must be like to work so hard, under such challenging conditions, build bridges between different sectors of society, achieve outcomes that are great for the health and well-being of your countryfolk and find yourself thrown in jail at the end of it.

The United States, EU and United Kingdom have all published statements expressing their concern for Khanh and the status of Vietnamese civil society. We need other G7 and G20 countries to do the same. If Penny Wong, Australia’s Foreign Minister, is listening…

There is much to discuss at the G7 meeting happening right now. Japan has, by finally withdrawing financing to its last two coal power stations, taken this awkward discussion off the agenda. But the urgent need to curtail oil and gas expansions, and ensure the freedom of civil society participants as a non-negotiable when arranging clean energy finance packages must be near the top of the agenda. These issues cut across human rights, environmental protection, economic risk, conflict and of course, our ability to keep on enjoying life on this tiny speck of dust we call Earth.

Now, I have surely given you a plethora of places to jump in. Where shall we start?