J-POWER
Shareholder Resolution
At J-POWER’s annual general meeting on 28 June 2023, shareholders have the opportunity to vote on two resolutions. The resolutions call on the company to set and disclose credible short- and medium-term emissions reduction targets, aligned with the goals of the Paris Agreement; and disclose how remuneration policies incentivise progress against emission reduction targets.
The resolutions are co-filed by Amundi, the largest European asset manager, HSBC Asset Management, and the Australasian Centre for Corporate Responsibility (ACCR), and are supported by Man Group, the world’s largest publicly traded hedge fund company. The three institutional investors – Man, Amundi and HSBC – have been co-engaging with J-Power for 18 months – and individually, longer.
In light of the significant divergence between J-POWER’s current decarbonisation strategy and the goals set by the Paris Agreement, combined with the company’s lack of substantial progress following our previous shareholder resolutions, each investor is also signalling an intent to vote against the re-election of the director principally responsible for J-POWER’s climate strategy, Representative Director (Executive Vice President) Hitoshi Kanno.
J-POWER, Japan’s largest coal power operator and sixth largest energy utility1, has publicly committed to transitioning towards carbon neutrality2, but evidence indicates a significant gap between its decarbonisation strategy and the goals of the Paris Agreement. The company lacks a defined phase-out schedule for domestic coal assets, an essential component for achieving a net-zero pathway which advanced economies like Japan should aim to reach by 2035, as per the International Energy Agency (IEA)3.
In response to J-POWER’s inadequate approach to decarbonisation, the co-engagement group made up by Man, Amundi and HSBC has filed two proposals:
- To set and disclose a science-based business plan for achieving short- and medium-term GHG emissions reduction targets in line with the Paris Agreement’s goals.
- To report annually on progress against these targets and disclose details of how remuneration policies will incentivize progress against these targets, ensuring transparency and cost-effectiveness.
In May 2023, J-POWER’s 2023 Medium-Term Management Plan introduced an updated emissions reduction target for 2030, in line with the Japanese Government’s 2013 reference year4. This resulted in a new baseline of 48.77 MtCO2e, up from the previous 46.6 MtCO2e (average emissions between FY2017-19). Consequently, the target for emissions reduction has been revised upwards from 40% to 44%, and further to 46%. However, this seemingly ambitious commitment represents only an additional reduction of 1.3 MtCO2e, suggesting that from an investor’s standpoint, this revised goal does not denote a significant enhancement of efforts towards reducing emissions. J-POWER’s emission reduction targets, set at 19% by 2025 and 46% by 2030 from a 2013 baseline, still fall short of the IEA’s recommended goals. To fully conform with a 1.5C net-zero emissions pathway for electricity generation in advanced economies, emissions should be curtailed by at least 49% by 2025 and 81% by 2030.
In addition, J-POWER’s current decarbonisation strategy, “Blue Mission 2050”, relies heavily on coal power and experimental technologies like hydrogen/ammonia co-firing and coal gasification with carbon capture and storage (CCS)5. This approach carries a risk of creating stranded assets, particularly since the company’s decarbonisation plan, set to accelerate after 2030, lacks clear details on these technologies’ role and efficacy in emissions reduction.
In the context of these concerns, in 2022, an investor co-engagement group including Man, Amundi, and HSBC led an important initiative by filing the first investor group-led climate shareholder resolution in Japan. This resolution, which called for stricter emissions targets for J-POWER, secured the support of 26% of shareholders6. Given the lack of a sufficient response to this vote and the significant risks to the long-term value of the company of J-POWER’s current climate plan, each member of the group has this year individually indicated their intent to vote against Representative Director Hitoshi Kanno, who holds responsibility for J-POWER’s decarbonisation strategy.
Immediate action is justified, considering the urgency of the situation: J-POWER has already consumed 96% of its carbon budget it has available as at 20257 (a calculation based on its share of total allowable global emissions in a 1.5C IEA net zero emissions pathway).
The company’s 2023 proposal to link climate change countermeasures with performance-linked remuneration falls short of demonstrating a robust commitment to mitigating climate change8. The absence of quantified and weighted climate-related performance targets within the remuneration structure suggests a misalignment between executive incentives and the pressing demands of the climate crisis.
The proposed resolutions call for a stronger and more evidence-based approach to climate change, reflecting the urgency of the issue. In light of these considerations, there is a strong case for shareholders to vote in support of these resolutions and evaluate the performance of Representative Director Hitoshi Kanno accordingly.
Sources
(1) ACCR, ACCR Company Engagement: J-POWER, link.
(2) J-POWER, J-POWER Blue Mission 2050, link.
(3) International Energy Agency (IEA), World Energy Outlook 2022, October 2022, link.
(4) J-POWER, Progress of J-POWER Medium-term Management Plan, 10 May 2023, link.
(5) J-POWER, J-POWER Blue Mission 2050, link.
(6) ACCR, Strong call by J-POWER shareholders to strengthen decarbonisation strategy, 28 June 2022, link.
(7) According to modelling conducted by ACCR.
(8) J-POWER, Notice concerning the partial change in the performance-linked compensation, 28 Feb 2023, link; Progress report on disclosure items – Opinion of the Board of Directors on Shareholder Proposals submitted for the 71st Ordinary General Meeting of Shareholders, 24 May 2023, link.