(Complicated environmental financing)
SDG, ESG, PRI, Divestment, Stewardship Code, TCFD, Taxonomy…. Let’s keep this much. Environmental finance is a relatively new concept that has recently been highlighted, but its movements are diverse and it is becoming increasingly difficult for us to understand the whole picture.
Environmental finance was not just brought out for the ideal of preventing global warming. With global monetary easing prolonged, institutional investors and financial institutions are urging for new investment and loan opportunities, while avoiding default risk. Their needs for environment-related investments are diverse both internationally and nationally (eg, differences in EU and US political positions), and this has led to a fierce initiative battle. Environmental finance is in the midst of this turmoil, with countries and business entities conducting various bargains.
This time, I would like to focus on indirect financing for coal-fired power generation in the overall picture of environmental finance. This is because Japanese power companies are currently concerned about securing and maintaining financing for coal-fired power generation.
(Lending policy of three Japanese megabanks)
At present, the three megabanks have clarified their environmental policies regarding financing, and in this context (although the details are different), they continue their policy of providing financing for ultra-supercritical coal-fired thermal power.
MUFJ “Environmental and Social Policy Framework”
https://www.mufg.jp/csr/policy/
Sumitomo Mitsui Financial Group “Response to Environmental Risks”
https://www.smfg.co.jp/sustainability/materiality/environment/risk/
Mizuho FG “Overview of Responsible Investment and Loans”
https://www.mizuho-fg.co.jp/csr/business/investment/pdf/investment.pdf
* Please refer to the description of “Coal-fired power” in all cases.
One of the reasons behind this is that as electricity liberalization accelerates, electric power companies are constructing and planning new coal-fired power plants (ultra-supercritical pressure) as part of reducing fuel costs.
But at the same time, megabanks are taking a tough look internationally on coal-fired financing (we’ll take a look at this again). As a result, the content of the loan policy is becoming more stringent year by year, and the power companies receiving the loan are strongly concerned about the future.
(Movement of Environment Minister)
Coal-fired financing faces a new challenge. As is well known, Minister of Environment, Shinjiro Koizumi has opposed Japan’s investment in Vietnam’s “Buan An 2 coal-fired power generation project”. He is insisting on a review of the four requirements * of Japanese financing, and power companies are concerned that the movement could have a direct impact on megabanks’ environmental guidelines.
* 4 requirements
・ Limit the financing to countries where coal must be selected as an energy source
・ There is a demand for high efficiency coal-fired power generation in Japan
・ Consistent with the energy policies and climate change measures of the partner country
・ Thermal efficiency above USC (ultra super critical pressure)
Due to the nature of environmental finance, there is no distinction between domestic and overseas megabank lending policies. Therefore, if the requirements are revised, financing for domestic power companies will have to be directly or indirectly affected.
However, some observers believe that this issue is merely a stand-play by the Minister of the Environment, Koizumi, triggered by the adoption of low-cost Chinese and US manufacturers. The Ministry of Economy, Trade and Industry has already taken steps to combat these internal and external headwinds on coal-fired power (again, I will explain this again).
In any case, power companies receiving coal-fired financing are inevitably overwhelmed by this and other circumstances, and they have to keep an eye on these issues.