Despite committing to net-zero emissions by 2050 and the goals of the Paris Agreement, Sumitomo Mitsui Financial Group (SMBC Group) has failed to align its new policies with these goals.
Their latest climate policy update lacks concrete action plans. SMBC has not yet disclosed meaningful short- and medium-term targets for emissions reduction nor have they revealed any meaningful measures taken to ensure that the bank is not financing fossil fuel supply expansion or its associated infrastructure, in line with the International Energy Agency’s Net Zero by 2050 Roadmap (IEA’s Net Zero Roadmap).
350.org Japan, Market Forces, Kiko Network, and Rainforest Action Network submitted shareholder resolutions to SMBC Group, asking the group to set and disclose short- and medium-term greenhouse gas emission reduction targets for its financed emissions and measures to ensure no contribution to new fossil fuel development.
The proposals also seek to maintain and improve SMBC Group’s corporate value by reducing the bank’s exposure to climate-related risk.
We recommend that investors vote in favor of the shareholder resolutions filed by 350.org Japan, Market Forces, Kiko Network, and Rainforest Action Network.
Although SMBC Group’s commitment to its portfolio-wide net-zero target by 2050 represents a crucial step, it alone does not ensure that the company is on track to achieve it. This long-term target can be only credible when combined with short- and medium-term targets.
UNEP’s Emissions Gap Report 2019 indicated that short- and medium-term targets are crucial. According to the report, we need a 7.6% annual emissions reduction between 2020 and 2030 to stay below 1.5ºC warming. It also emphasized that annual reductions by 2025 are especially crucial because if we delay, “the steeper and more difficult the cuts become,” and “by just 2025, the cut needed will be 15.5% each year, making the 1.5°C targets almost impossible.”
While SMBC Group has set an intensity target for financed emissions in the power sector, it is not sufficient. The company can meet this intensity target even while increasing its financing for the fossil fuel power sector, which is inconsistent with the net-zero pathway. In addition, the target only applies to lending and not to investment and underwriting. The company has also committed to announcing 2030 emissions targets in the energy sector (coal, oil and gas) in August 2022. However, the scope of these targets appears limited to “upstream businesses”, and associated fossil fuel infrastructure, which the IEA also highlights in its NZE2050 scenario such as LNG terminals, are out of the scope of SMBC Group’s target setting plans.
The co-filers of the resolutions have engaged with SMBC Group over several years and more recently about its climate-related risks policies. While SMBC Group has shown a willingness to engage on these issues, the company has failed to propose to disclose meaningful short- and medium-term targets and how they align SMBC Group’s financing and investments with the net-zero pathway.
We recognize that SMBC Group has made some progress in strengthening its climate-related targets and policies (including its coal mining sector policy). It is a step forward that SMBC Group broadened its scope of coal power phase-out target and now added corporate finance tied to facilities in addition to conventional project finance equivalent. However, loopholes remain in relation to other “lending to coal-fired power generation” which is not tied to certain facilities.
Even with its latest commitments, SMBC Group still has no policy to restrict financing for new oil and gas development which is clearly inconsistent with the IEA’s Net Zero Roadmap and the Paris Agreement.
We believe SMBC Group’s financial risk will remain extremely high if the business is to continue as usual. Therefore it is our recommendation that investors vote in favor of the shareholder resolution filed by 350.org Japan, Market Forces, Kiko Network, and Rainforest Action Network.